News: Flybe set to buy BA regional offshoot

Flights > News > # 1048 (03/11/2006)

British Airways has agreed to sell the struggling regional arm of its BA Connect subsidiary BA to Flybe.

Manchester-based BA Connect made losses of £6 million in the first half of the year and is seen as a lame duck by BA chief executive, Willie Walsh. It operates 52 routes from 13 airports around the UK, although BA said it will keep hold of the services from London City Airport and between Manchester and New York.

Walsh said: “Point to point regional operations are not a strategic part of our business and we believe that such activities are better undertaken by a regional low cost airline.

“Despite the best efforts of the entire team at BA Connect, we do not see any prospect of profitability in its current form.”

He added: “The proposed sale to Flybe provides the best opportunity to secure the long-term future for the many dedicated staff in BA Connect.”

As part of the deal, which has yet to be finalised, BA will take a 15 per cent stake in Flybe. The acquisition will significantly increase Flybe’s route network both in the UK and continental Europe, making it Europe’s largest regional airline.

Flybe plans to accelerate its current fleet renewal programme and will phase out all of the existing BA Connect aircraft as soon as possible to be replaced by new Bombardier Q400 turboprops and Embraer 195 regional jets.

Flybe chairman, Jim French, said: “The Flybe business model concentrates on domestic and European city markets and has been incredibly successful over the last four years. This acquisition will allow us to bring our growth plans forward by two years.”

Comment:

Following on from the jostling between the different regional airlines making new route announcements, the oft-rumoured demise of BA Connect has perhaps arrived slightly sooner than expected. Flybe had never made any secret of wanting to compete aggressively against BA's regional subsidiary, having recently increased their frequency on Southampton to Glasgow flights up to six services each day, and saying they were looking into offering hourly shuttle flights from Birmingham to Glasgow. Signs of BA Connect's impending surrender were already emerging with its decision to axe the Southampton to Glasgow route, and a hasty withdrawal of its new flights between Birmingham and Belfast City earlier in the year. However, BA Connect had always been able to maintain some loyalty on certain key European business routes, with flights from Birmingham and Manchester to Germany often commanding hefty premiums. This was clearly very noticeable to Flybe, who had already dipped their toe in the water by launching flights from Birmingham to Germany’s conference capital, Hanover.

In the end, there was just nowhere left for BA Connect to run. Many commentators might decry BA's complete exit from Birmingham, which is Britain's second city afterall, as well as its retreat from numerous other parts of the UK, but the takeover by Flybe should at least provide some continuity on the more popular routes. Some comparisons have been made with other European airlines, for example by suggesting Lufthansa would never pull out of Munich or Dusseldorf, but this is not entirely fair. The traditional European 'legacy' airlines need to maintain a hub and spoke system in order to stay competitive. Even though Birmingham's Eurohub was initially designed to offer rapid connections between flights, BA has never managed to develop much transfer traffic through any of their hubs outside London. The point to point services which are expected between the different regional airports, or between cities like Birmingham and Manchester, and major European destinations, can always be much more efficiently provided by a low-cost airline, and even if the short-lived BA Connect might have pretended to be a no-frills airline, it was never a low-cost one. Although BA Connect may have also provided feeders into other airline's hubs (for example flights from Bristol to Paris, a route which Air France themselves previous cancelled), this was never a core part of the airline's business focus - why should British Airways want to carry on losing money by feeding passengers onto its competitors' flights?

So should British Airways now rename themselves London Airways?

The question isn't really that relevant if you look at the geography of countries like the UK and France, and compare it with that of other major European countries like Spain, Germany and Italy. Geographers describe cities like London and Paris as being 'hypertrophic', meaning that their size and importance is significantly greater than the next most important city. It might well be lamentable that British Airways no longer considers cities like Birmingham and Manchester as being important places to base its aircraft, but the fact remains that the overall route network from both cities is vastly superior to the range of flights which is available from cities like Lyon, Marseille or Nice in France. If you then add in the additional destinations which are available from alternative airports like Liverpool or Nottingham East Midlands, the next question to ask is whether we need British Airways at all in the regions? 

Whatever nostalgic associations there might be between British Airways and the regions, the airline’s chief executive, Willie Walsh, knows what needs to be done to keep BA lean in a fiercely competitive market. Back in London, British Airways don't just have to compete with the no-frills airlines, but it also has to take on the challenge of two well established home-grown scheduled rivals in the form of BMI and Virgin Atlantic - a challenge which the likes of Lufthansa and Air France don’t have to worry about to anything like the same extent. Add this to the ongoing security farce, and the latest threat from the new long-haul business class airlines, and we're sure that BA Connect is one additional headache that Mr Walsh will be glad to do without. However competitive the London market might look, its importance will continue to be bolstered by the tentacles British Airways operates back to Manchester, Newcastle, the Channel Islands and Scotland, as well as the numerous European cities which provide feeders into British Airways' all-important long-haul network. The London flights market is over double the size of its nearest European rival, Paris, so it is easy to see why British Airways wants to focus all its efforts here.

We expect to see further consolidation in 2008 when Heathrow terminal five finally opens its doors, enabling British Airways to operate all its Heathrow flights from under one roof. This move might well enable the re-establishment of British Airways connections between Heathrow and regional outposts such as Inverness and Jersey, which are currently only linked from Gatwick.